Yield-seekers – a 13.3% coupon on investment-grade debt!

This is a couple months late, but one of the casualties of the high-CPI environment is the issue of debentures that Constellation Software (TSX: CSU) made many years ago.

At the end of every March, they update it to CPI plus 6.5%. This year, bondholders will get a coupon of 13.3%!

CSU has the right to call the debt with 5 years’ notice in the last 15 days of March each year, and otherwise it matures on March 2040.

If they exercise this right, and if the 13.3% coupon keeps up for the next five years (doubtful), you are looking at a 3.3% yield to maturity, due to the fact that the debt is trading at 38 cents over par.

But for current yield seekers, I find some humour that the largest coupon available on the debt market right now is from a top-rated company.

The next TSX-traded debt issuer that has the largest coupon is Valeo Pharma (TSX: VPH) with a 12.0% coupon. With a market cap of $44 million, it is miles away from the financial condition that CSU is in.